Further pullback expected in DXY – Westpac

FX Strategists at Westpac see the move lower in DXY gathering extra pace in the next days.

Key Quotes

“USD index looking increasingly toppy but doubt it will morph into a more sustained pullback – the Fed should cement Dec Fed hike expectations, though admittedly with markets pricing in a 60% hike probability they do not need to send a stronger signal/soft pre commitment like they did in Oct 2015”.

“Residual seasonality in the jobs data points to a clear bias in favour of stronger Q4 jobs prints starting with this week’s Oct data (11 of the last 15 Oct-Dec releases over the last 5 yrs have beaten consensus vs just 4 of the last 15 Jul-Sep releases)”.

“Base case remains for a Clinton victory – 538.com and Real Clear Politics still give her the edge, albeit with diminished odds. A Clinton victory likely sees USD/EM slip as a relief rally takes hold but the USD index (i.e. USD/majors) likely firms if recent price action is anything to go by”.

“Bottom line: a constructive macro picture for the USD is still intact near term but the price action gives pause for thought. Beyond that and into Q1 2017 USD likely to have a solid pause – the Fed is unlikely to deliver anything more than a very dovish hike while EZ surveys show growth momentum is improving and for 2017 as a whole the BoJ and ECB’s balance sheets are likely to grow less quickly than has been the case in recent years”.